Sometimes being right is not a virtue, especially when it comes to the Federal Arbitration Act § 1 exemption. We predicted uncertainty after the New Prime v. Oliveira decision and got it. See our Jan. 17, 2019, blog post on the exemption. Indeed, if anything, recent decisions have raised more questions than answers. Part of the problem stems from the fact that in New Prime the parties admitted that Oliveira worked in interstate commerce, so applicable tests for coverage were not considered. See 139 S. Ct. 532, 539 (2019).

The Rittman case was brought by delivery drivers who were parties to individual contracts with the defendants treating them as independent contractors. Of the thousands of putative class members, all but 165 were parties to contracts with a provision requiring individual arbitration of disputes governed by the Federal Arbitration Act (FAA). Other provisions of the agreements were governed by the laws of the state of Washington. The central thrust of the plaintiffs’ complaint was that they were improperly treated as independent contractors instead of employees.

The chief issue of the court’s April 23 order was whether the arbitration provision was unenforceable because plaintiffs were covered by the FAA’s § 1 exemption for transportation workers. See 9 U.S.C. § 1.

The Court’s Analysis

The district court recognized that courts have construed § 1 (excluding “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce”) differently than Section 2 (which covers “a contract evidencing a transaction involving commerce”) (emphasis added). The judge also understood that courts within the Ninth Circuit have required a closer relationship between the worker and interstate commerce than with other legislation. But, the court distinguished those decisions, because the Rittman plaintiffs delivered goods shipped from around the U.S. to the ultimate consumer. That fact persuaded the district court to find coverage, even if the workers never crossed state lines.

In concluding its analysis, the court considered whether a strike by the workers at issue would impact or “interrupt” interstate commerce. And, Judge Coughenour concluded that a strike by plaintiffs would interrupt interstate commerce. Unfortunately, the interstate commerce test used by the court is so general it is very difficult to apply today as opposed to in 1925.

A recent opinion from the Northern District of Illinois, Wallace v. Grubhub Holdings Inc., No. 18C4538 (U.S. District Court, N.D. Illinois, Memorandum Opinion and Order March 28, 2019) took a different approach. There, food delivery service drivers brought a class action against Grubhub seeking additional wages. The court compelled arbitration, finding that “[t]heir day to day duties do not involve handling goods that remain in the stream of interstate commerce, traveling to and from other states.” The court also found that the food-delivery drivers were not similar to the “seamen” and “railroad employees” named in the FAA exemption.

Neither the Wallace nor Rittman opinions established any readily applicable standards for the exemption. Indeed, future cases will likely be determined by their individual facts based on other lower court decisions around the country until definitive post-New Prime guidance comes from federal appellate courts or the U.S. Supreme Court. In the interim, determining what sufficiently impacts interstate commerce to apply the exemption may be a slippery slope for the lower courts.

Finally, another nettlesome aspect of the Rittman opinion was its refusal to apply Washington state law to the arbitration agreement when the FAA was inapplicable. Ultimately, the court found Washington law could not apply and the arbitration agreement unenforceable. The order’s analysis proceeded as follows:

Here, if the parties intended Washington law to apply if the FAA was found to be inapplicable, they would have said so or even remained silent on the issue. Instead, they did the opposite – in the Governing Law Provision, the parties explicitly indicated that Washington law is not applicable to the Arbitration Provision. Indeed, it appears that it is precisely against the parties’ intent to apply Washington law to the Arbitration provision.

Finding Washing law inapplicable, the court could not determine what law to apply or whether the arbitration agreement was intended to “remain enforceable.” Consequently, Judge Coughenour found no valid agreement to arbitrate. While the court did not consider it because of other language, the parties had selected Washington law to govern the resolution of disputes arising from the interpretation of the agreement.

The Next Chapter

Although it is only one decision, Rittman does raise future issues for courts and legal counsel. First, some bright lines need to be established for the application of the § 1 exemption. A vague interstate commerce impact standard is not sufficient for decision-making in the transportation and delivery sector. Second, companies operating trucking and delivery services should consider spelling out what workers do and do not do in any arbitration agreement.

Third, to avoid the future impact of negative court decisions in these uncertain times, companies should consider the application of state contract law and arbitration procedures, if the FAA is not applicable. Companies must, however, determine if the applicable state laws permit the enforcement of class or collective action waivers.

BOTTOM LINE:

The Rittman opinion demonstrates the problems with the application of the FAA § 1 exemption after New Prime. Given the lack of bright line standards, disputes over the exemption will continue – and likely multiply.

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